Business Accounting Assignment : ASB
Added on 2021-04-17
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RUNNING HEAD: BUSINESS ACCOUNTING Financial Information – Its Users and Characteristics
Business accounting 2Users and Qualitative Characteristics of Financial InformationThe hunt for a conceptual framework for financial reporting is carried out in different countries of the world. There are various definitions given regarding the framework, out of which FASB defined it as: “It is a constitution and a comprehensible system, consisting ofunified goals and fundamentals that reflects reliable standards and defines the nature, function and limits of financial accounting and statements’. The ASB in UK states that the “framework sets out some principles which should be taken into consideration while preparing and presenting the general purpose of the financial statements. It is a coherent frame which is used as reference by the board for reviewing the accounting standards”. Thesedefinitions shows that the conceptual framework guides in formulating and applying the accounting rules in a fair and effective manner (Haslam and Chow, 2016).According to the UK Statement of Principles, several advantages of the framework have beenclaimed. For example, it helps in making better decisions by eliminating the scope of personal biasness. It also reduces the need of various detailed standards as the accountants can resolve the issues with general principles. The main reason for introducing conceptual framework in UK was to move from rules based accounting to principles based accounting system. SOP is considered as UK’s Own conceptual framework issue by Accounting Standards Board (ASB). The influence of USA, increasing international needs of accounting and growing global economic corporation stimulates the development and formulation of SOP. International Accounting Standard Board (IASB) issued a conceptual framework whichhas been adopted by all the companies operating worldwide. In United Kingdom, most of the companies prepare and present their final accounts on the basis of the IFRS framework. The concept addresses various aspects of financial reporting, out of which one is related to the qualitative characteristics of useful financial information (Ifrs.org. 2017).
Business accounting 3Tesco PLC is a multinational grocery and general merchandise retailer having its headquarters situated in England, United Kingdom. In terms of profits, the company is considered as the third largest retailer in the world and ninth largest measured by revenues. Tesco is the leading grocery market in UK having its stores in more than 12 countries across Asia and Europe. In UK, the company has a market share of 28.4% and most of its revenue are generated from UK only. The products offered by Tesco are Supermarket, Hypermarket and Superstore with a revenue of £55,917 million, reported in year 2017 (Tesco plc. 2018). According to the information provided in the annual reports, the group prepare its financial statements in accordance with the IFRS standards and the framework issued by IASB, adopted by European Union. Annual report also states that the financial statements of the parent company are prepared as per the UK Generally Accepted Accounting Principles and inaccordance with the provisions of Companies Act 2006 (Tescoplc.com. 2017).Generally, users of financial information are classified as internal and external. The users or people who are directly affected by the changes happening in the organization and are a part of company’s management are known as internal or primary users. On the other side, people who are not involved in the management and functions of an organization are known as external users (Kayode, 2015). Tesco has some non-management external users of its financial information. They are listed below:Customers: Being a retailer, the main users of Tesco are its consumers. They are those people from whom Tesco derives its revenue. As a result of which, they are highly interested in the financial statements of the company. By analysing them, they come to know about the Company’s goodwill and position of the brand in market along with the quality check of products and services.
Business accounting 4Investors: The people who invest their funds in an organization are basically known as the investors. It is a group of those individuals which are directly and indirectly affected by the company’s performance. Tesco’s investors uses its financial reports to know about the profitsmade and returns offered on the investment. Another purpose is to check the feasibility of investing in the company. Creditors: These people are basically the suppliers of Tesco, from whom company purchases material on credit. Creditors need to know about the credit worthiness of the company which is reflected from its financial reports prepared at the end of fiscal year. They evaluate the statements to know about Tesco’s current debt and have an idea about the riskiness of the firm. External Auditors: People having a specialised and professional knowledge, perform the audit of company’s financial statements as per the specific laws and regulations. For the purpose of auditing, external auditors need to look at the final accounts of the company and prepare a report to shareholders. These people do not interfere in the management of the organization.Tax Authorities: The authorities needed financial information for measuring the reliability of the tax returns filed on behalf of the company. All the above users requires the information printed in company’s annual reports for their own purpose and objectives. As the users are different, so they also have different purpose and way of using the financial information. The major factor which is considered while relying on the data is its qualitative characteristics. These are some features which make an information more useful, relevant and reliable for its users. The conceptual framework of IASB laid some qualitative features which every company’s financial information should
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